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Tax Code

Dáil Éireann Debate, Wednesday - 26 June 2013

Wednesday, 26 June 2013

Questions (84)

Pearse Doherty

Question:

84. Deputy Pearse Doherty asked the Minister for Finance the current tax treatment of discretionary trusts and the revenue that could be raised for the Exchequer if the once-off charge for establishing a trust was increased by 1% and the annual tax of the trust was increased by 0.5%. [30925/13]

View answer

Written answers

I am informed by the Revenue Commissioners that the assets in a Discretionary Trust are chargeable to Discretionary Trust Tax when the settlor dies or, if later, when the youngest “Principal Object” of the trust attains the age of 21 years. In this context, “Principal Object” is defined as the settlor’s spouse, civil partner, child, child of a civil partner or child of a pre-deceased child. The assets are chargeable to Discretionary Trust Tax while they remain in a Discretionary Trust. Discretionary Trust Tax is chargeable as follows:

(i) A once-off 6% charge on the value of the assets in a trust

Where the trust is created during the lifetime of the settlor the tax becomes chargeable at the date of death of the settlor, or, if later, when the youngest “Principal Object” of the trust attains the age of 21 years.

(ii) An annual 1% charge arising on 31 December of each year on the value of the assets of the trust at that date (assuming there are no Principal Objects under the age of 21 years).

This 1% charge does not apply in a year where 31 December occurs in the twelve months immediately following the date on which the 6% charge arose.

Discretionary Trust Tax returns (Form IT4 for the 6% initial charge and Form IT32 for the 1% annual charge) must be filed together with payment of the tax due, within these time limits:

- For the initial once-off charge; within 4 months of the due date.

- For the annual 1% charge; within 4 months of 31 December of each year.

A breakdown between the yield of discretionary trust tax from the once off charge and the annual tax is not available. But, based on an understanding that the bulk of the yield is derived from the annual tax and, on the basis of collection trend to date, it is estimated that the full year yield to the Exchequer from the suggested increases in the rates of 1% in the once-off charge and 0.5% in the annual charge would be of the order of €0.5 million.

This estimate is provisional and subject to revision.

It should be noted that this estimate is based upon an assumption that there would be no behavioural impact of this change, which could lead to a less than expected impact on Exchequer yield. In addition, the realisation of any estimated yield from an increase in taxation on assets relating to property is subject to movements in the value of such assets, which are currently occurring in the economy.

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